It is a pleasure to participate with this distinguished group. My remarks will summarize how I see the agriculture credit situation in Texas at the present time -- along with a little forecasting -- and then talk more specifically about some credit problems in the state's primary cotton producing areas.

But, before I get started, it's important that you remember that our bank is not a primary lender. We gather and have money available for 30 Production Credit Associations and 20 Agriculture Credit Corporations. So, I am at a disadvantage since I am not across the desk from the farmer or rancher. On the other hand, we do get a broad perspective from reports across the state. Farm and ranch balance sheets are strong. From 80-90 percent will be able to secure funds. Debts are increasing and cash flow is a problem.

Unfortunately, doom and gloom appear the norm for a severely depressed agriculture in the Texas Farm Credit District. Thus, the challenges for agricultural lenders are many.

Increasing debt in the 1970's seemed to be smart for Texas farmers and ranchers. Beginning in about 1978, the cost side of production began to tighten up, while commodity prices took wide swings, settling on the down side. In Texas, we have had weather -- drouth, flood, hail, and wind. To add to the problem, government programs -- thought to be helpful -- have resulted in increased debt load for many operators. The end result is 20-30 percent of our operators lack the cash flow to service debt.